Autonomous Expenditure - Explained
What is an Autonomous Expenditure?
Written by Jason Gordon
Updated at June 27th, 2021
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Table of Contents
What is an Autonomous Expenditure?Why is Autonomous Expenditure ImportantAcademics Research on Autonomous ExpenditureWhat is an Autonomous Expenditure?
Autonomous expenditure simply refers to spending that must be done, regardless of income. It is the minimum spending by an individual or the government when income is at level zero.
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Why is Autonomous Expenditure Important
An Autonomous expenditure by an individual or government refers to spending in an economy that is mandatory. The real level of income of an individual or a country does not affect autonomous expenditure. According to classical economic theory, autonomous spending affects the aggregate output of an economy. As such, the rise or decline in autonomous spending will translate to the same in the aggregate output.
A change in the level of income, whether positive or negative, does not cause a change in autonomous expenditure. For instance, autonomous expenditure for an individual could be food purchase, house costs, payment of utility bills and others. The amount of income directed towards autonomous expenditures might be adjusted when there is a decline in the level of income, they still remain mandatory spending. For instance, individuals might reduce or change their food habits, live in smaller apartments, cut off some utilities among others, but these expenditures are ever-present. So, even when changes in income level affect how the expenses are met, the needs remain unchanged. For the government, autonomous expenditure is associated with self-governance and the ability to meet basic needs. For instance, humans cannot do without food or shelter. This is important to their ability to live and is therefore autonomous. Expenditure that is not necessary or mandatory is regarded as non-essential and can be categorized as discretionary spending or a discretionary expenditure. Autonomous Expenditure and autonomous consumption go hand in hand, as the latter concerns what is mandatory or absolutely necessary amount of consumption by and individual or people. They are needs that are not affected by the level of income. The majority of government spending is considered to be mandatory or autonomous spending. Such as the provision of basic amenities and infrastructure, good health care, road networks, and others. Autonomous expenditure for the government has a strong connection with its autonomy, it goes a long way in determining how well a country is able to meet its basic needs.
Academics Research on Autonomous Expenditure
- Tackling the instability of growth: a Kaleckian-Harrodian model with anautonomous expenditurecomponent, Allain, O. (2014). Tackling the instability of growth: a Kaleckian-Harrodian model with an autonomous expenditure component.Cambridge Journal of Economics,39(5), 1351-1371. This article presents a basic Kaleckian model, enriched by the simultaneous addition of an Harrodian investment function and an autonomous expenditure component that grows at an exogenous rate. The model shows that the usual short-run properties (wage-led growth) are only transient, since the long-run growth rate converges towards that of autonomous expenditures. However, the impact on the level of variables (output, capital stock, labour, etc.) is permanent. The model also provides a conditional solution to the second Harrod knife-edge problem: the destabilizing behavior of firms (as they adjust their investment decisions to the discrepancy between the actual and the normal rates of capacity utilization) is now required to achieve the normal rate of capacity utilisation.
- Balanced growth in multi-sectoral income propagation underautonomous expenditureschemes, Nikaido, H. (1964). Balanced growth in multi-sectoral income propagation under autonomous expenditure schemes.The Review of Economic Studies,31(1), 25-42.
- Tests of the relative importance of autonomous expenditures and money, DePrano, M., & Mayer, T. (1965). Tests of the relative importance of autonomous expenditures and money.The American Economic Review,55(4), 729-752.
- Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model, Hein, E. (2018). Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model.Journal of Post Keynesian Economics,41(2), 316-338. This article is linked to some recent attempts at including a noncapacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilization from a normal or target rate, we rather focus on the so-far neglected issues of deficit, debt, and distribution dynamics in such models. For this purpose, we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the long-run convergence of the system toward such a growth rate, analyze the related debt dynamics, and deal with stability and income distribution issues. Finally, we touch upon the economic and, in particular, fiscal policy implications of our model results.
- The Quantity Theory and the Income Expenditure Theory in an Open Economy: Canada, 19261958, Macesich, G. (1964). The Quantity Theory and the Income Expenditure Theory in an Open Economy: Canada, 19261958.Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique,30(3), 368-390. Post-war balance of payments problems are partly the results of policy applications of the modern view of the balancing mechanism of international trade theory. Derived from the Keynesian income-expenditure theory of income determination, the modern view relegates the role of the stock of money to a secondary place in determining national income. It asserts that control of the stock of money through monetary policy is incapable of significantly, or dependably, influencing the circular flow of income and thereby the balance of payments. One reason for this view is the conviction that monetary velocity behaves in an erratic and unpredictable manner. In contrast, pre-Keynesian theory attributed a central role to the stock of money, and so to monetary policy, in the balancing mechanism of international trade. It contained an explicit acceptance of the quantity theory of money which argues, among other things, that monetary velocity does behave in a predictable manner.